We have buyers and sellers who cannot come together on a sales price due to a third party interfering with the market value. The results are a shifting population and a creation of a heretofore unknown predicament for the middle class. Here is what is actually happening in the market.
Square One
Anxious sellers are sacrificing their beloved homes at less than they paid for the property and are wringing their hands waiting for offers after the realtor takes the listing. Why are they so anxious, and why do they need to sacrifice their primary home? Reasons abound, but mostly due to loss of income, reduced income, or death of a spouse. The last four years have made a mockery of the earlier housing boom, and the punitive results that resulted from a TARP bailout, wherein assets purchased between 2006 and 2008 lost their equity. Now people who value their credit rating, and would never dream of taking a bailout, are in vain working with their mortgage holders to either reduce their monthly payments, or asking the bank to accept less than the outstanding debt in a short sale. The offers coming in from cash buyers often remain drastically below what the bank may have approved for a short sale. When the sales person submits all of the contract paperwork to the lender, often times the bank balks and the sale is lost.
Square Two
Not being able to handle the looming threat of a sheriff sale over their daily lives, the owners move out, desperately trying to work with the bank while paying rent to live elsewhere. With their downgraded credit rating, a home they have tried to sell at any price but have been rejected, what are the remaining options, as the bank seems to be holding all the cards?
Square Three
Advised to do a deed in lieu, they watch as the bank sells the property to an investor, at an even lower price than the bank previously rejected when listed for sale with the original homeowners, and then the investor rents it out to someone at less than the original homeowners are now renting elsewhere? Of course, the original owners who "lost their home" are now facing seven years of poor credit due to the foreclosure, while they followed all the rules, did everything that was asked of them, but still lost much more than just their equity.
Square Four
The results are a shifting population of homeowners with investors now reaping all the rewards of the upside down market. In addition, long term mortgages as we know them are being debated in a Senate committee to revert back to the "five year term loans" prior to the FHA programs. That would mean that if you were lucky enough to qualify for a loan today, according to Homefinder, "then every few years you would be required to get a replacement mortgage, something that could be difficult if you had lost a job or the value of your property declined."
Mobility lost, homes are coming with potential "expiration dates" and an entire middle class losing not just their equity, but the security of their neighborhoods. The nations' largest banks are creating a society of the "haves and the have nots;" a new culture that was unintended, but nevertheless happening, and only thoughtful legislation can stop this abuse.
Due to Congress's inability to agree to do anything constructive for the bulk of the American public, we can be assured that nothing will be done before 2013 to come to the aid of the housing market. Sometimes in a legislators' zeal to 'right a wrong' they go overboard and end up doing much more harm than good. The free market of housing should have been kept at an arm's length reach from the banks, who were punished by the Dodd-Frank Act, and then rewarded for each home that they took off their books that originated after 2005. While they were being made whole for their debt, who was watching out for the American public, who just eight years ago boasted a 69 percent home ownership rate, and have now plummeted to 65.4 percent? Result: very sad scenario and hopefully one never to be repeated in our American history.